Reviewed by Sean McNamara, 2026-10-07
Retention is the percentage (typically 3-5%) an employer withholds from each payment as security for completing defects. The rules are contractual - but industry standard forms (JCT) set the patterns, and the law limits how long money can be held hostage.
Practical completion certified -> retention halves within the payment period. Defects period runs (typically 12 months) -> defects notified and made good -> certificate of making good defects -> balance released. Snagging disputes do not freeze the whole retention indefinitely: unresolved defects justify withholding an amount REFLECTING those defects, not everything.
Ladder: payment notice/defect-position correspondence (the contract's payment machinery creates deadlines), then statutory adjudication (available for construction contracts - fast, binding interim), then litigation/arbitration. Interest runs under the Late Payment of Commercial Debts Act for commercial contracts. Document the defects position contemporaneously - the party with the cleaner defects file usually recovers its retention first.
Retention is governed by the contract: the rate (commonly 5% reducing to 2.5% at practical completion), the release triggers (half at practical completion, half at the end of the defects period - typically 12 months), and the mechanism (separate account requirements in some contracts). JCT standard forms embed these patterns; bespoke contracts vary - read the payment provisions, not the marketing.
5% of each interim payment, halving to 2.5% at practical completion. Large projects may cap retention at a fixed sum. Anything above 10% is exceptional and should be resisted - it signals cash-flow hostage-taking rather than security.
A contractual right to withhold part of each payment as security for proper completion and the making-good of defects. It is NOT a penalty and NOT the employer's money until the release conditions fail - the contractor retains title subject to the contract's conditions.
Contract-defined: conventionally half released at practical completion, the balance at the end of the defects liability period (usually 12 months). Holding beyond the contractual trigger without a genuine defects justification is a breach entitling the contractor to interest and, in serious cases, suspension rights.
Industry consultation has repeatedly recommended replacing retention with retention bonds or deposit models, and several government reviews criticised the practice - but as of 2026, retention remains lawful and standard practice in the UK. Contractual bans or bonds appear in bespoke and larger projects.
In the retention context the relevant contrast is: contractual retention (a contractual right to withhold money) versus a lien (a right to hold property - e.g. a contractor holding site until paid, which English law restricts). 'Types of lien' questions usually concern possessory vs equitable liens - a different doctrine from contractual retention; do not mix the two in correspondence.